Monday, October 19, 2015

[aaykarbhavan] Judgments and Infomration [6 Attachments]






Alabra Shipping Pte Ltd vs. ITO (ITAT Rajkot)

COURT:
CORAM: ,
SECTION(S):
GENRE:
CATCH WORDS: ,
COUNSEL:
DATE: October 9, 2015 (Date of pronouncement)
DATE: October 19, 2015 (Date of publication)
AY: 2011-12
FILE: Click here to download the file in pdf format
CITATION:
Law on applicability of Article 24 of the India-Singapore DTAA (Limitation of Benefits) to a case where the income is not remitted to, or received in Singapore, explained
The assessee, i.e. GAC Shipping India Pvt Ltd, filed a return in respect of MT Alabra, which is owned by Alabra Shipping Pte Ltd of Singapore (ASPL-S, in short) and the ASPL-S is freight beneficiary in respect of the same, as an agent of ASPL-S and under section 172(3) of the Act. The assessee claimed benefit of the India Singapore Double Taxation Avoidance Agreement, the funds were remitted to freight beneficiary's account with The Bank of Nova Scotia in London UK. The AO held that as the freight was remitted to a country other than Singapore and remittance to Singapore is a sine qua non for availing the benefits of the Indo-Singapore tax treaty, the assessee was not entitled to the benefits of the benefits of the India Singapore tax treaty in view of Article 24 thereof. The CIT(A) confirmed the same by relying on Abacus International Pvt Ltd Vs DDIT [ITA No. 1045/Mum/2008; order dated 31st May 2013; now reported as (2013) 34 taxmann.com 21 (Mumbai – Trib.)]. On appeal by the assessee to the Tribunal HELD allowing the appeal:
(a) As a plain reading of Article 24(1) would show, this LOB clauses comes into play when (i) income sourced in a contracting state is exempt from tax in that source state or is subject to tax at a reduced rate in that source state, (ii) the said income (i.e. income sourced in the contracting state) is subject to tax by reference to the amount remitted to, or received in, the other contracting state, rather than with reference to full amount of such income; and (iii) in such a situation, the treaty protection will be restricted to the amount which is taxed in that other contracting state. In simple words, the benefit of treaty protection is restricted to the amount of income which is eventually subject matter of taxation in the source country. This is all the more relevant for the reason that in a situation in which territorial method of taxation is followed by a tax jurisdiction and the taxability for income from activities carried out outside the home jurisdiction is restricted to the income repatriated to such tax jurisdiction, as in the case of Singapore, the treaty protection must remain confined to the amount which is actually subjected to tax. Any other approach could result in a situation in which an income, which is not subject matter of taxation in the residence jurisdiction, will anyway be available for treaty protection in the source country. It is in this background that the scope of LOB provision in Article 24 needs to be appreciated;
(b) On facts, there is no dispute that the business is being carried on by the assessee in Singapore and that the assessee is tax resident of Singapore. By letter dated 31st December 2013 (Reference no. 200716495G), Inland Revenue Authority of Singapore has confirmed that, in the case of Albara Shipping Pte Ltd, "freight income has been regarded as Singapore sourced income and brought to tax on an accrual basis (and not remittance basis) in the year of assessment". The assessee has also filed a confirmation dated 4th December 2013 from its public accountant that the freight of US $ 6,71,366 earned on MT Albara's sailing from Sikka port has been included in the global income offered to tax by the company in Singapore. On these facts, the provisions of Article 24 cannot be put into service as this provision can only be triggered when twin conditions of treaty protection, by low or no taxability, in the source jurisdiction and taxability on receipt basis, in the residence jurisdiction, are fulfilled. There is nothing on the record to even vaguely suggest that the freight receipts of ASPL-S were taxation only on receipt basis in Singapore. Quite to the contrary, there is reasonable evidence to demonstrate that such an income was taxable, on accrual basis, in the hands of the assessee.
(c) As regards reliance of the authorities below on the decision of this Tribunal, in the case of Abacus International (supra), suffice to say that it was in the context of interest income of the assessee and there was nothing on record to suggest that such an income was to be taxed in Singapore on accrual basis, rather than on receipt basis. The Assessing Officer thus derives no advantage from this decision. Having said that we may add that we are in complete agreement with the coordinate bench that, in order to come out of the mischief of Article 24, the onus is on the assessee is to show that the amount is remitted to, or received in Singapore, but then such an onus is confined to the cases in which income in question is taxable in Singapore on limited receipt basis rather than on comprehensive accrual basis. However, in a case in which it can be demonstrated, as has been demonstrated in the case before us, that the related income is taxable in Singapore on accrual basis and not on remittance basis, such an onus does not get triggered.

Related Judgements

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    The argument that in using the words "in the Contracting State", Article 12(4) incorporates the "place of performance test" and negates the "source rule" and that services rendered offshore are not taxable is not acceptable for two reasons. Firstly, because the expression "provision for services" is wider than the…
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Alabra Shipping Pte Ltd vs. ITO (ITAT Rajkot)

by editor
The benefit of treaty protection is restricted to the amount of income which is eventually subject matter of taxation in the source country. This is all the more relevant for the reason that in a situation in which territorial method of taxation is followed by a tax jurisdiction and the taxability for income from activities carried out outside the home jurisdiction is restricted to the income repatriated to such tax jurisdiction, as in the case of Singapore, the treaty protection must remain confined to the amount which is actually subjected to tax. Any other approach could result in a situation in which an income, which is not subject matter of taxation in the residence jurisdiction, will anyway be available for treaty protection in the source country

Thomson Press (India) Ltd vs. CIT (Delhi High Court)

COURT:
CORAM: ,
SECTION(S): ,
GENRE:
CATCH WORDS:
COUNSEL:
DATE: October 9, 2015 (Date of pronouncement)
DATE: October 19, 2015 (Date of publication)
AY: 1991-92, 1992-93
FILE: Click here to download the file in pdf format
CITATION:
S. 263: Claim that notional interest on funds placed by the s. 10A eligible unit with the H.O. is allowable as a deduction to the H.O. and is exempt in the hands of the s. 10A unit is an "unsustainable view" justifying revision action
The Assessee credited interest on the surplus generated from its undertaking at NEPZ, NOIDA in the books of accounts maintained for that undertaking. Correspondingly, a contra entry was passed by the Assessee in the books of accounts maintained in respect of its Head Office. The Assessee included the notional interest as income in computation of profits and gains derived by its undertaking from export of articles or things, for the purposes of claiming deduction under Section 10A of the Act. The Assessing Officer did not reject the inclusion of such interest as the profits and gains of the undertaking, which were deducted by the Assessee from its total income for computing its taxable income. The CIT considered the assessment order passed by the AO to be erroneous as prejudicial to the interest of the Revenue. Consequently, the CIT passed orders under Section 263 of the Act, which were upheld by the Tribunal. On appeal by the assessee HELD dismissing the appeal:
(i) The claim of the Assessee for including notional interest as profit and gains derived from the eligible undertaking for the purposes of Section 10A of the Act is not sustainable in law. It follows from a plain reading of Section 10A(1) that only those profits and gains of an Assessee which have a direct nexus with an undertaking to which Section 10A of the Act applies would be excluded from the income of an Assessee. In the present case, the interest credited by the Assessee in the books of the eligible undertaking is notional and practically unconnected with the eligible undertaking; the interest has been credited on the surplus generated, which has been transferred from the accounts of the eligible undertaking to the head office. Concededly, the interest credited does not represent any real inflow of funds to the Assessee. The Assessee merely reflects inflow of funds in separate books maintained with respect to the eligible undertaking with a corresponding outflow of funds in the books maintained with respect to the head office (i.e. non-eligible undertaking). In view of the aforesaid, the interest cannot be considered as profits and gains derived by the Assessee from the eligible undertaking as it does not bear a direct nexus with the activities of the eligible undertaking.
(ii) In the present case, the Assessee has not derived any interest income. Therefore, reducing such notional income – which has neither been accrued nor received – from the Assessee's total income is completely alien to the scheme of the Act. Such notional interest could never form a part of the Assessee's income and thus the Assessee's claim that the same is to be excluded under Section 10A of the Act is flawed and wholly unsustainable in law. The view as canvassed on behalf of the Assessee is not, even remotely, plausible and we find no infirmity with the CIT's exercise of jurisdiction under Section 263 of the Act.
(iii) We are also unable to accept the contention that since in the preceding year, no issue has been raised with regard to charging of interest by one unit to another, the same could not be picked up by the CIT under Section 263 of the Act. Merely because an issue remained unchecked in a preceding year does not mean that the CIT is estopped from exercising its powers under Section 263 of the Act. It is well established that the principles of res judicata do not apply to income tax proceedings and an error in the preceding year need not be repeated or ignored in the subsequent years. In the present case, the issue was not picked up in the preceding year. Further, the claim of the Assessee cannot be stated to be of a nature which has been consistently accepted in past several preceding years since the entry in relation to notional interest had been passed by the Assessee only in one preceding year and had remained undebated.

Related Judgements

  1. CIT vs. Motorola India Electronics (P) Ltd (Karnataka High Court) 
    S. 10A/ 10B: Interest income out of surplus funds in Banks and sister concerns & EEFC account is eligible for exemption
    Though s. 10(B) speaks about deduction of such profits and gains as derived from 100% EOU from the export of articles or things or computer software, sub-section (4)…
  2. CIT vs. Hritnik Exports Pvt. Ltd (Delhi High Court) 
    Sub-section (4) of s. 10B does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking. Thus, once…
  3. Great Eastern Exports vs. CIT (Delhi High Court) 
    Applying the test of literal construction, s. 80-IA (9) provides for two things (a) once an assessee is allowed deduction u/s 80 IA, "to the extent of such profits and gains" he is not to be allowed further deductions under Chapter-C and (b) in no case the deduction shall…
  4. CIT vs. Yokogawa India Ltd (Karnataka High Court) 
    On issue (i), s. 10A was amended by the FA 2000 w.e.f. 1.4.2001 to convert it from an "exemption" provision to a "deduction" provision. S. 10A allows deduction "from the total income". The phrase "total income" in s. 10A means "the total income of the STP unit"…
  5. R. L. Allied Industries vs. ITO (ITAT Delhi) 
    As per Section 153A(1)(b), the Assessing Officer is empowered to assess or reassess the total income of the six assessment years immediately preceding the assessment year relevant to the assessment year in which search is conducted. Thus, in other words,…Read more ›


Thomson Press (India) Ltd vs. CIT (Delhi High Court)

by editor
The Assessee has not derived any interest income. Therefore, reducing such notional income – which has neither been accrued nor received – from the Assessee's total income is completely alien to the scheme of the Act. Such notional interest could never form a part of the Assessee's income and thus the Assessee's claim that the same is to be excluded under Section 10A of the Act is flawed and wholly unsustainable in law. The view as canvassed on behalf of the Assessee is not, even remotely, plausible

Pr. CIT vs. G & G Pharma India Ltd (Delhi High Court)

COURT:
CORAM: ,
SECTION(S): ,
GENRE:
CATCH WORDS:
COUNSEL:
DATE: October 8, 2015 (Date of pronouncement)
DATE: October 19, 2015 (Date of publication)
AY: 2003-04
FILE: Click here to download the file in pdf format
CITATION:
S. 147: Reopening only on the basis of information received that the assessee has introduced unaccounted money in the form of accommodation entries without showing in what manner the AO applied independent mind to the information renders the reopening void
The AO reopened the assessment u/s 147 on the basis that there was specific information regarding the name of the entry provider, the date on which the entry was taken, the cheque details as well as the amount credited to the account of the Assessee. The revenue claimed that this by itself constituted sufficient material for the AO to form an opinion that the "assessee company has introduced his own unaccounted money in its bank account by way of accommodation entries". However, the Tribunal quashed the reopening on the ground that the reasons recorded by the AO for the reopening of the assessment showed that apart from making a mere reference to information received from the investigation wing, the AO mechanically issued notice under Section 148 of the Act, without coming to an independent conclusion that he has reason to believe that the income has escaped assessment during the AY in question. On appeal by the department HELD dismissing the appeal:
(i) In Chhugamal Rajpal v. SP Chaliha (1971) 79 ITR 603, the Supreme Court was dealing with a case where the AO had received certain communications from the Commissioner of Income Tax showing that the alleged creditors of the Assessee were "name-lenders and the transactions are bogus." The AO came to the conclusion that there were reasons to believe that income of the Assessee had escaped assessment. The Supreme Court disagreed and observed that the AO "had not even come to a prima facie conclusion that the transactions to which he referred were not genuine transactions. He appeared to have had only a vague felling that they may be "bogus transactions". It was further explained by the Supreme Court that before issuing a notice under S. 148, the ITO must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under S. 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the ITO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of cl. (a) or cl. (b) of S. 147 are satisfied, the ITO has no jurisdiction to issue a notice under S. 148." The Supreme Court concluded that it was not satisfied that the ITO had any material before him which could satisfy the requirements under Section 147 and therefore could not have issued notice under Section 148.
(ii) In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: "I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries." The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: "it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries". In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case.
(iii) The fact that the CIT (A) discussed the materials produced during the hearing of the appeal is not relevant because it is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the CIT(A) may have proceeded on the basis that the reopening of the assessment was valid, this does not satisfy the requirement of law that prior to the reopening of the assessment, the AO has to, applying his mind to the materials, conclude that he has reason to believe that income of the Assessee has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity.

Related Judgements

  1. Sarthak Securities vs. ITO (Delhi High Court) 
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  2. Pr. CIT vs. Tupperware India Pvt. Ltd (Delhi High Court) 
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  5. Bir Bahadur Singh Sijwali vs. ITO (ITAT Delhi) 
    The important point is that even though reasons, as recorded, may not necessarily prove escapement of income at the stage of recording the reasons, such reasons must point out to an income escaping assessment and not merely need of an inquiry which may result in detection of an income…



Pr. CIT vs. G & G Pharma India Ltd (Delhi High Court)

by editor
Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: "it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries". In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case

Mangalore Ganesh Beedi Works vs. CIT (Supreme Court)

COURT:
CORAM: ,
SECTION(S):
GENRE:
CATCH WORDS: ,
COUNSEL:
DATE: October 15, 2015 (Date of pronouncement)
DATE: October 19, 2015 (Date of publication)
AY: 1995-96
FILE: Click here to download the file in pdf format
CITATION:
S. 32: Even prior to the insertion of "intangible assets" in s. 32, intellectual property rights such as trademarks, copyrights and know-how constitute "plant" for purposes of depreciation. The department is not entitled to rewrite the terms of a commercial agreement
The Supreme Court had to consider whether in AY 1995-96, when s. 32 did not make any distinction between tangible and intangible assets, the Assessee was entitled to any benefit under Section 32 of the Act read with Section 43(3) thereof for the expenditure incurred on the acquisition of trademarks, copyrights and know-how. HELD by the Supreme Court upholding the claim:
(i) The definition of 'plant' in Section 43(3) of the Act is inclusive. A similar definition occurring in Section 10(5) of the Income Tax Act, 1922 was considered in Commissioner of Income Tax v. Taj Mahal Hotel (1971) 3 SCC 550 wherein it was held that the word 'plant' must be given a wide meaning. The question is, would intellectual property such as trademarks, copyrights and know-how come within the definition of 'plant' in the 'sense which people conversant with the subject-matter with which the statute is dealing, would attribute to it'? In our opinion, this must be answered in the affirmative for the reason that there can be no doubt that for the purposes of a large business, control over intellectual property rights such as brand name, trademark etc. are absolutely necessary. Moreover, the acquisition of such rights and know-how is acquisition of a capital nature, more particularly in the case of the Assessee. Therefore, it cannot be doubted that so far as the Assessee is concerned, the trademarks, copyrights and know-how acquired by it would come within the definition of 'plant' being commercially necessary and essential as understood by those dealing with direct taxes.
(ii) Section 32 of the Act as it stood at the relevant time did not make any distinction between tangible and intangible assets for the purposes of depreciation. The distinction came in by way of an amendment after the assessment year that we are concerned with. That being the position, the Assessee is entitled to the benefit of depreciation on plant (that is on trademarks, copyrights and know-how) in terms of Section 32 of the Act as it was at the relevant time. We are, therefore, in agreement with the view taken by the Tribunal in this regard that the Assessee would be entitled to the benefit of Section 32 of the Act read with Section 43(3) thereof;
(iii) The Act does not clothe the taxing authorities with any power or jurisdiction to re-write the terms of the agreement arrived at between the parties with each other at arm's length and with no allegation of any collusion between them. 'The commercial expediency of the contract is to be adjudged by the contracting parties as to its terms.' (D. S. Bist & Sons v. CIT [1984] 149 ITR 276 (Delhi) referred);
(iii) There is a clear finding of fact by the Tribunal that the legal expenses incurred by the Assessee were for protecting its business and that the expenses were incurred after 18th November, 1994. There is no reason to reverse this finding of fact particularly since nothing has been shown to us to conclude that the finding of fact was perverse in any manner whatsoever. That apart, if the finding of fact arrived at by the Tribunal were to be set aside, a specific question regarding a perverse finding of fact ought to have been framed by the High Court. The Revenue did not seek the framing of any such question. The High Court was not justified in upsetting a finding of fact arrived at by the Tribunal, particularly in the absence of a substantial question of law being framed in this regard (K. Ravindranathan Nair v. Commissioner of Income Tax [2001] 247 ITR 178 (SC) followed)

Related Judgements

  1. Sudarshan Silks vs. CIT (Supreme Court) 
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    In Commissioner of Income Tax vs. Anand Theatres 224 ITR 192 it was held that except in exceptional cases, the building in which the plant is situated must be distinguished from the plant and that, therefore, the assessee's generating station building was not to be treated as a plant…
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    The department's argument that the installation, commissioning & maintenance services were intricately connected with the international transactions of warranty support services and commission income and that their operating cost and operating revenue had to be considered while computing the profit level indicator is not acceptable because the installation/ commissioning…
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    The cost for carrying forward the contracted foreign currency not immediately required for repayment is called the roll over charge(s). The argument that s. 43A applies only to cases where there is a fluctuation in the rate of exchange and that since roll over charges are paid to avoid…


Mangalore Ganesh Bidi Works V C I T Supreme Court of India
The question is, would intellectual property such as trademarks, copyrights and know-how come within the definition of 'plant' in the 'sense which people conversant with the subject-matter with which the statute is dealing, would attribute to it'? In our opinion, this must be answered in the affirmative for the reason that there can be no doubt that for the purposes of a large business, control over intellectual property rights such as brand name, trademark etc. are absolutely necessary. Moreover, the acquisition of such rights and know-how is acquisition of a capital nature, more particularly in the case of the Assessee. Therefore, it cannot be doubted that so far as the Assessee is concerned, the trademarks, copyrights and know-how acquired by it would come within the definition of 'plant' being commercially necessary and essential as understood by those dealing with direct taxes

BSE to trawl social media for listed co. info; SEBI scrutinizes banks for black money

BSE to trawl social media for listed co. info; SEBI scrutinizes banks for black money

 


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